Additional contributions by David Cohen.

In the West, monopolies are a source of fear. Silicon Valley has tried for many years to convince users and regulators that the term should be rehabilitated. Since the 2016 American presidential election, however, the increasingly monolithic role of tech in Western society is coming under fire. Leaders of tech firms are being subjected to vitriol in public hearings in the US, while the EU searches for ways to curtail their influence in public and private life. In China, however, the role of tech in society is viewed in a much different light. For the state, big is beautiful.

Like the West, China has its clear tech winners. But there’s no easy comparison. Much ink has been spilled trying to understand Chinese tech majors by comparing them to Silicon Valley counterparts; just as American tech majors control ever more of the economy, so too do China’s. 

In China, more than anywhere else, the boundaries between online and off are increasingly blurred, giving tech giants outsized influence not just on how we consume, but also the broader shape of the economy. Since 2014, the growth in revenue for Baidu, Alibaba, and Tencent have outstripped China’s GDP by many multiples:

Revenue growth at the tech giants has far outstripped national GDP. (Image credit: TechNode/David Cohen)

Far from the open space the internet was imagined as, these firms are defining it as a series of fiefdoms. Unlike US majors who have stayed relatively confined in their chosen verticals, China’s fiefdoms are sprawling empires encompassing almost every transaction in the consumer economy.

Bottom line: The heady days of the early internet are long gone. First envisioned as an open network freeing the flow of information, the global internet is now balkanized. While China was the first country to isolate its internet, we now see balkanization along company lines as well. Silicon Valley has its FANG (Facebook, Amazon, Netflix, and Google) while the Middle Kingdom has its BAT (Baidu, Alibaba, and Tencent) and TMD (Toutiao/Bytedance, Meituan, and Didi). To do business (not just online), entrepreneurs must rely on the giants for money, access to users, and much more. 

Competing fiefdoms: The two biggest fiefdoms are those of Tencent and Alibaba. Founded just a year apart, these two giants couldn’t be any different. Tencent began as a social media company with its release of QQ in 1999. Since then, it has expanded into gaming and content (movies, books, music, etc). Its CEO, Pony Ma, is notoriously media-shy and the company encourages a siloed approach to product development, encouraging teams to compete.

Alibaba, on the other hand, started as an e-commerce company. By creating a trust mechanism, Alipay gave buyers and sellers confidence to make transactions. Since then, the company has consolidated its e-commerce strength with a variety of services online and increasingly offline. Jack Ma, co-founder and former CEO, is outspoken, flamboyant, and always ready with a clever quip.

Valued at $75 billion, Bytedance is an outlier. A second-generation giant, Bytedance has amazingly grown from a news aggregator app into a real threat for both Alibaba and Tencent. Leveraging its powerful recommendation algorithm, Bytedance entertainment products are slowly eating away at Tencent’s hold on attention while their foray into e-commerce could potentially loosen Alibaba’s stranglehold as well.

Proxy war: Both Alibaba and Tencent, while expanding into peripheral verticals, also compete head-to-head: Tencent has allied e-commerce platforms Pinduoduo and Jingdong; Alibaba has social media/workplace tool DingTalk as well as music app Xiami and O2O services Koubei (which competes with Tencent-backed Meituan). These proxy plays are just another example of how ambitious these companies are. But they have to be: if they didn’t incorporate these new products and service models into their fiefdom, they would quickly become irrelevant and lose much of their hard-won market share, as Baidu has done.

A cautionary tale: If there ever was a company (and founder) who should have succeeded, it was Ofo and Dai Wei. President of the Communist Youth League at Tsinghua, Dai Wei was an up-and-coming leader. Zhen Fund, which claims to invest in founders more than ideas, saw a young, well-connected man who might just have what it takes to grow a company from nothing to a giant. However, Dai’s effort to play both sides (Tencent and Alibaba) doomed Ofo. 

Bike rentals, no matter which way you cut it, was a tough business. Dai made it even tougher by taking investment from, and allowing on the board, Tencent-backed Didi and Alibaba’s Ant Financial. Both wanted in on the booming bike rental market, but neither would allow the other to take control. Ultimately, Didi would instead buy and scale BlueGogo and Ant Financial would get into bed with lower-tier city success story Hello Bike.

The slow death of the open web: The web (as in the world-wide one) was meant to be open. The HTTP protocol and HTML language were created to allow anyone and everyone to create and disseminate information. It was about information, not monetization. However, over the past decade we’ve seen some of the smartest people create inventive ways to make money on top of the web infrastructure. But you can easily use the internet protocols without the web.

Eleven years ago, apps were a very novel thing. Many, at first, were ported websites with a mobile UX. By now, apps have evolved into the centerpiece of everyone’s phone: you can’t have a successful smartphone product without apps to back them up. 

Without companies dedicated to the open web a la Google and with the fierce competition in the China market, the open web is virtually dead in China. Baidu, even though very similar to Google, never had the same principles. Their search product, as it stands now, does more to drive traffic within its own fiefdom than actually fulfilling user requests for information. For companies, the open web means a much more shallow moat where users can flit from link to link. Apps, on the other hand, are sticky, designed to keep users inside as long as possible. “Deep linking” to other applications on a phone wasn’t even allowed until many iterations after the first version of iOS.

And the open web is only getting more dead: In China, private traffic has become the latest in monetization techniques. Using “open” platforms like Taobao, merchants pull buyers into their conversion funnels with WeChat groups 

For Chinese users, there’s almost no reason to open a web browser: all their content, friends, family, shopping, and playing are all done through apps controlled by one of the tech giants or their partners. 

This suits the giants very well. By keeping users in their ecosystem of apps and blocking deep links to competitors’ suite of apps, China’s tech majors are reinforcing their monopolistic fiefdoms while users are enjoying the fruits of even more consumption power.

John Artman is the Editor in Chief for TechNode, the leading English information source for news and insight into China’s tech and startups, and co-host of the China Tech Talk podcast, a regular discussion...

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